Vestas Speeds Layoffs in Face of Uncertain Wind Energy Outlook

August 22, 2012

Vestas Speeds Layoffs in Face of Uncertain Wind Energy Outlook

The world’s largest wind turbine maker is cutting employees to prepare for softer demand and adjust to unknowns in U.S. policy.

Wind on the Plains: A wind farm with Vestas turbines in the U.S. Credit: Vestas

Wind turbine maker Vestas has accelerated plans to reduce headcount to prepare for a difficult year ahead and the possible ending of a wind energy tax credit in the United States.

The Aarhus, Denmark-based company today said that it will eliminate an extra 1,400 jobs this year, on top of the 2,300 announced earlier this year, in an effort to trim 250 million Euros in costs and turn a profit next year.

The move at the world’s largest wind turbine manufacturer stems from lower demand due to sluggish economies around the world and the uncertainty regarding a production tax credit in the U.S., which could expire at the end of this year.

“We’ve very busy this year and at the same we have to prepare for quite a stop next year,” Vestas CEO Ditlev Engel told Bloomberg TV today. “So we need to walk a very fine balance.”

A production tax credit (PTC) for wind energy provides 2.2 cents per kilowatt-hour to wind project developers for ten years. With the possibility of that energy, the wind energy industry expects to see a surge in installations this year, but a significant slow down next year as happened when the PTC lapsed in previous years. (See, Does the Wind Production Tax Credit Matter?)

The lay-offs have apparently begun in Vestas’ U.S. offices. Earlier this week, the company cut 30 workers at a plant in Brighton, Colorado, according to the Denver Post. That follows 90 people at a tower plant in Pueblo, Colorado announced last week.

A research center in Houston, Texas is being shut down, too, as part of the belt-tightening, according to the Houston Business Journal. In January, Vestas said it was prepared to cut 1,600 jobs in the United States if the PTC isn’t extended.

There are factors at play other than uncertainty over the PTC. New turbine installations in China are being slowed by the inability to connect some turbines to the grid, Vestas has said. Also, subsidies for renewable energy in other countries are threatened from pressure to cut government spending.

Whether to extend the PTC is figuring into the presidential contest. Mitt Romney has said he does not support extending it, a point the Obama camp has hammered on during political rallies in Iowa and Colorado where there is a significant domestic wind industry.

Wind power is cheaper than solar power but is still more expensive than power generated from a natural gas plant, particularly since natural gas prices have fallen so much. (See, King Natural Gas.) Wind now supplies nearly 50,000 megawatts of power and new installations have grown faster than coal or nuclear, according to the American Wind Energy Association. The U.S. has more than 20 percent of the world’s installed wind, it says.

Subsidies for renewable energy can’t last forever, but most policy analysts agree that predictable policies are best for the business community. We’ll see this year whether the wind industry has enough political and economic clout to successfully lobby for those long-term policies.